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OMAN Economy - March 2009

Source:
United Securities

Executive Summary

With a new hope for a whole new year ahead, the realization counts “how much has the world changed in one year- from hope to despair, from excitement to fear, from frenzy to panic, from exuberance to distress. The cascade of crisis has now spread as a global epidemic that poses different effect on respective economies. It has also taken its initial toll on countries such as Iceland, Belarus and (almost) Argentina in terms of bankruptcies while making recession a reality for as many as 50 countries thus far. The crisis of confidence in the financial ecosystem has compounded to a full-blown credit crisis, while the squeeze in conventional credit markets is understandable. The economies and the policy makers around have come forward for immediate remedy like reducing the interest rates, infusing liquidity and inject stimulus through fiscal spending on internal infrastructure.

But how far these activities have been successful in doing so. The severity of immediate worries has certainly intensified. While the world remains united on commitment to wither this crisis, it is also uniformly clueless on the path one needs to take. To be very specific, how our economy is behaving at present and has reacted to the global conundrums in 2008.

According to the Ministry of National Economy, “GDP jumped by around 61.4% in the third quarter, its highest quarterly nominal growth in the history.” In the first three quarters, the GDP grew by 52%, led by the high oil prices and the country's crude output,

In the third quarter, the oil sector jumped up by 96.3% compared with around 58.6% in the second quarter and 62.7% in the first quarter. The contribution from non-oil sector also increased by 48.8% in the third quarter. Oman crude basket averaged around $113 a barrel in the third quarter of last year compared with $117 in the second quarter and $92 in the first quarter. The decline in the average in the third quarter was largely offset by a surge in Oman's crude output, which averaged around 780,000 barrels per day (bpd) compared with 745,000 bpd in the second quarter and 707,000 bpd in the first quarter, according to data by the Oman Ministry of Oil, Omani crude averaged at $103.90 a barrel in 2008.

Oman’s banking sector has also fared better than most. While access to credit is falling which will hurt Omani companies and financial institutions, the sultanate is experiencing a “credit squeeze rather than a credit crunch”. We expect such problems to continue for short term, since the banks are still strong, well capitalized, and are not exposed to the crisis affected instruments or institutions.